00
Knowledge Sharing Session
Solar Power Business in Japan15th August 2016
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Knowledge Sharing1
Japan’s Electricity generation decreased during 2011 to 2015 from nuclear plant shutdown
Japan’s electricity demand(Unit: TWh)
Japan’s electricity generation(Unit: TWh)
• As a result of the earthquake incident in 2011, some
nuclear power plants, accounted for 15GW, had
been shutdown
• Therefore, the electricity generation in Japan is in a
decreasing trend at -1.4% CAGR
• The demand of electricity in Japan was fluctuated in
recent years
• However, the government has been forecasted that
the demand would be increased to 980 TWh
within 2030 at 0.4% per annum
Source: Global Energy Statistic Yearbook 2016, Enerdata; Japan’s electricity demand by Japan’s Ministry of Economy Trade and Industry (METI)Remark: 1 TWh = 1,000 GWh
956 956 967 946 921 980
2011 2012 2013 2014 2015 2030F
1,051 1,034 1,045 1,025 995
2011 2012 2013 2014 2015
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Knowledge Sharing2
By 2030, renewable energy will be the third largest portion ofJapan’s electricity resources
Share of electricity generated by fuel(%)
2030 Japan’s Renewable Generation Mix Forecast(Unit: GW)
Hydro
8.8-9.2%
Solar
7.0%
Biomass
3.7-4.6%
Wind 1.7%
Geothermal
1.0-1.1%
330
• Before the Fukushima incident portion
of renewable energy is the second
lowest source of fuel in Japan
• After the Fukushima incident in March
2011, Japan’s Government have
reconsidered their reliance on nuclear
power and shifted towards
renewable energy
• In 2030, renewable energy will be
doubled its portion from 2013 to be
approx. 24% of total electricity
generation
• The total electricity generation is
expected to be 330 GW in 2030
• According to the Government’s policy,
renewable energy will paly more role
in the future where it will be approx.
22-24% of total generation in 2030
• Solar will increase its portion to 7% of
total generation within 2030 which is
accounted for 20-23 GW
Source: U.S. Energy Information Administration (EIA), METI and Bloomberg New Energy Finance
30%43%
27%
24%
30%
26%
7%
14%
3%
11%
12%
24%
27%
1%
20%
2010 2013 2030
Natural gas
Coal
Oil
Renewable
Nuclear
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Knowledge Sharing3
GPSC has been invested in 20.8 MW solar PV in Ichinoseki, Japan which will COD in Q4 2017
Project Ichinoseki Solar Power 1 (ISP1)
Location Ichinoseki, Iwate Prefecture, Japan
Type Solar
Capacity Electricity: 20.8 MW
Customer Tohoku Electric Power (20 years)
SCOD Q4 2017
Type of investment Godo Kaisha Investment (GK)
Total Investment ~10,000 JPY million
D/E 4:1
Progress 2Q16 56.7% (Site preparation)
Feed in Tariff* 40 JPY/kWh for 20 years
Interest rate < 2% for 20 years, Shinsei Bank
EPC Conergy Group
GPSC’s First Expansion to Japan’s Renewable Energy Sector
• GPSC has tapped into Japan market with the current 20.8 MW
solar project.
• Still, given the high feed-in tariffs, low financing cost, there are still
the unutilized solar-potential areas worth exploring further.
Remark: *Tax inclusive
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Knowledge Sharing4
Ichinoseki Solar Power (ISP1)
Ichinoseki Solar Power (ISP1)
Japan
2Q16
56.7%
Progress update
99%
GA
1%
Shareholding
• PPA contract with Tohoku Electric Power Company is concluded;
secured FiT at 40 JPY/kWh for 20 years
• EPC contracts and Facility agreement have been executed
• Installation will start in Q3/2016
• Finalized loan agreement and ready to start drawdown the loan
• GPSC first international project to COD in 2017
% Progress
Site preparation
99%
1%
Equity
Investment
~2,080 YEN Million
GPSC
Others
1Q16
33%
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Knowledge Sharing5
Japan’s Solar FiT is higher than Thailand’s FiT where GPSC has secured FiT at 40 JPY/kWh for 20 years
• In July 2012, Japanese Government
has launched incentives through Feed-
in-Tariff (FiT) with an attempt to
rapidly encourage investment in
renewable energy
• FiT for solar power is declined due to
lower cost of panel and installation
• However, FiT in Japan is still higher
than FiT in Thailand which is approx.
19 JPY/kWh**
• GPSC has secured FiT at 40 JPY/kWh
for 20 years
Source: METIRemark: Thailand used adder system in 2012-2013 which is approx. 6.50 THB/kWh + 3 THB/kWh (Ft) = 9.50 THB/kWh*29 JPY/kWh from April 1 to June 30, 27 JPY/kWh from July 1**Thailand’s FiT for ground mounted solar is 5.66 THB/kWh announced by Energy Policy and Planning Office (EPPO), Ministry of Energy in 2014
29 29
19 19 19
40
36
32
2724
2012 2013 2014 2015 2016
*29/
Japan
Thailand
Adder scheme
• After Japanese Government’s
incentives, the number of solar PV
installed capacity has been
increased since 2012 at 58 % per
year (2012-2015)
Cumulative installed capacity of solar PV(MW)
1,296 1,718
6,967
9,740 10,811
2011 2012 2013 2014 2015
Japan vs. Thailand’s Solar FiT(JPY/kWh)
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Knowledge Sharing6
GPSC uses floating rate as reference of project’s interest rate in which GPSC has secured interest at lower than 2%
• Over the past years, 6M LIBOR (JPY) is much lower than 6M BIBOR
• Whereas GPSC has secured interest rate at 6M LIBOR (JPY) plus margin which is below 2% for 20 years
0
0.5
1
1.5
2
2.5
3
3.5
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
6-month BIBOR vs. 6-month LIBOR (JPY)Unit: %
6M BIBOR
6M LIBOR (JPY)
Source: Bank of ThailandRemark: BIBOR is Bangkok Interbank Offered RateLIBOR is London Interbank Offered Rate (Japanese Yen)
GPSC interest
rate is below 2%
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Knowledge Sharing7
GPSC uses the leading solar panel supplier to ensure quality of the project
Conergy Japan
Profile
• A subsidiary of Conergy Group which have been
founded in 1998 in Hamburg, Germany
• The company is privately-held and majority-
owned by Miami-based asset management firm
Kawa Capital Management, Inc.
• Regional headquarter: Singapore and Bangkok
Experiences & Services
• Have experiences more than 16 years
• Active in 40 countries on five continents with
subsidiaries in 15 countries
• Installed over 2.2GW of solar energy to date
• Offers all services that are related to solar power;
namely, Turnkey large-scale systems, Operations
and Management, Project development &
Finance
• Considered as of the leading photovoltaic
providers
Solar farm installation
• Conergy has been installing solar farms in various
countries; Germany, United Kingdom, USA,
Canada, Spain, Italy, Australia, Philippines, Japan,
Thailand, India, South Africa, Saudi Aribia,
Example of Conergy Group Portfolio
Solar farm
Thüngen, Germany
Solar farm Negros
Occidental,
Philippines
Solar farm
Hokkaido, Japan
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Knowledge Sharing8
GPSC uses GK structure on ISP1 project to ensure control over the project company
Godo Kaisha (GK) Tokumei Kumiai (TK)
Project Co.Service
Equity
investment
Operation &
ManagementRevenue
• GK structure is an equity investment in order to have control
over project company
• Moreover, GPSC is able to consolidate financial performance
of the project company on GPSC’s financial statement
• The dividend income that GPSC receives will be taxed, only
once, at source (in Japan), as there is Double Tax
Agreement
• TK structure is a passive investment where TK investors only
provide funding through TK operator in which TK investor has
no share and control over project company
• TK investor will receive return in terms of TK distribution;
similar to profit sharing, which depends on an agreement
between TK investor and TK operator called TK agreement
• TK investor will be doubled tax according to Japanese and Thai laws
TK investor
Project Co.
TK distribution/
Profit sharingTK investment/Passive investment
Operation &
ManagementRevenue
TK
operator
SharesAsset
Manager
Dividend
Service Asset
Manager
Thai Co.
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Knowledge Sharing9
GPSC deliberately uses GK structure to comprehend all information for the first investment in Japan
Godo Kaisha (GK) Tokumei Kumiai (TK) Implication to GPSC
Structure • Equity investment • TK investment • As a first investment in Japan, GPSC would like to ensure its
control over the project company
• GPSC is able to consolidate the project’s financial
performance onto GPSC’s financial statement, hence,
enhancing GPSC’s revenue and balance sheet
Control • Full control • No control
Return form
• Consolidation of Financial
performance
• Dividend income
• TK distribution
Japanese
effective tax
rate
• ~ 35%
• ~ 35%
• TK distribution is treated as
taxable expense
• Less taxable income
• The project company is taxed at the same corporate income
tax rate, where GK structure is taxed as normal Japanese
corporate
• While TK structure allows project company to treat TK
distribution as taxable expense, thus, the taxable income is
lesser than the company using GK structure; implying low tax
payment
Japanese
taxation on
dividend/
TK
distribution
• According to the Japanese tax treaty, TK distribution will be
subjected to 15% withholding tax in case TK investor has
operating business in Thailand, where it is recognized as
tax credit
• GPSC’s dividend income, from GK structure, is subjected to
15% withholding tax
Cash
received
from
dividend/
TK
distribution
• Corporate tax income exemption on GPSC’s cash received
from dividend according to Double Tax Agreement
• Whereas the TK distribution is not defined in the Double
Tax Agreement, thus, Thai corporate income tax will be
applied to the money received
Total
effective tax
rate*• ~ 44% • ~ 20.00%-40%
• Even though GPSC has pay higher effective tax rate, the
company consider control over the project co. as priority
TK investor
Project Co.Project Co.
Dividend:
15% withholding
tax at source
TK distribution:
15% withholding
tax at source
(tax credit)
No Corporate
income tax
20% Corporate
income tax
Remark: *Effective tax rate are calculated from assumptions and factors which may differ in other cases.The calculation of effective tax rate assumes transferring all profit to TK investor andwithholding tax paid in Japan is creditable for CIT paid in Thailand; according to Double Tax Treaty.
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Knowledge Sharing10
Options of business structure and implications
Godo Kaisha (GK) Tokumei Kumiai (TK) Implication
Japanese
effective tax
rate
• ~ 35%
• ~ 35%
• TK distribution is treated as
taxable expense
• Less taxable income
• Both GK and TK structure have to pay effective tax rate at 35%
• However, TK structure allows project company to treat TK
distribution as taxable expense
Japanese
taxation on
dividend/
TK
distribution
• According to the Japanese tax treaty, TK distribution will be
subjected to 20.42% withholding tax when transferring
money to Hong Kong
• While dividend income, from GK structure, will be subjected
to withholding tax at 5% due to the tax treaty between
Japan and Hong Kong
Cash
received
from project
co.
• The money received from Japan to a holding company in
Hong Kong, both GK and TK structure, is accounted as
dividend income
• According to Hong Kong tax treaty, there is a tax
exemption on dividend income, thus, both holding
companies do not have to pay corporate tax income
Cash
received
from
holding
company
• Given Thai co./TK investor is granted with IHQ privilege,
Cash received from holding company is not subject to tax (IHQ is International Headquarters privilege granted by the Revenue
department, Thailand)
Total
effective tax
rate*• ~ 38% • ~ 20.42%
• By assuming that all profit from project co. is distributed to TK
investors, hence, no tax paid on effective rate in Japan; only
20.42% withholding tax is calculated as total effective tax rate
• As s result total effective tax rate to Thai Co. and TK
investor are approx. 38% and 20.42%, respectively
• In this case, establishing a holding company could help
minimize effective tax rate
TK investor
Project Co.Project Co.
Dividend:
5% withholding
tax at source
TK distribution:
20.42% withholding
tax at source
No Corporate
income tax
No Corporate
income tax
Thai Co.
Holding
Co.
Holding
Co.
No Corporate
income tax
No Corporate
income tax
Remark: *Effective tax rate are calculated from assumptions and factors which may differ in other cases
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Knowledge Sharing11
Concerns towards investment in Japan
• Cost overrun
• Creditability of asset manager and Contractors
• Timeline and Cost of grid connection
• Creditability of solar panels manufacturer
Concerns
• Exchange rate fluctuation
• Curtailment
• Permission
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Knowledge Sharing12
GPSC’s strong footsteps in Renewable Energy in Japan
Huge growth potential for
Renewable Energy installed
capacity in Japan
Attractive FiT scheme, higher than
in Thailand
Lower financial cost
Stronger grid stability than many
other Asian countries
High skilled and experienced staffs
Opportunities in investing in other renewable energy in Japan
Investment Opportunity
WHY JAPAN?
Highly attractive project as GPSC secured highest FiT of 40 JPY/kWh for 20 years
GK structure allows GPSC to enhance the company revenue and balance sheet
Able to control the project company
Understand business’ structure in Japan
Have good relationship with local bank; increase possibility of obtaining lower interest rate for future project
Receives know-how from local project asset’s operator
Investment Rationale
ISP 1